Imagine you’re driving down a road, minding your own business, then suddenly you’re cut-off by another driver. A natural response might be to assume the other driver is impatient, reckless, and probably a complete asshole.
Now flip the script. You are racing down the road to get to the hospital. Your wounded spouse sits in the back. You notice another car merging into your lane. It appears that they are going to hit you so you act quickly, swerving into another lane by cutting someone off. You don’t think twice about it. You don’t think you are impatient, reckless, or a complete asshole. A minute later someone cuts you off. You think to yourself “what a jerk”.
When dealing with other people, our tendency to place an undue emphasis on internal characteristics while downplaying external factors is known as the fundamental attribution error.
The attribution of attitudes
In 1967, Jones and Harris performed an experiment that demonstrated the fundamental attribution error in action. Subjects were asked to read essays for and against Fidel Castro. Once read, the subjects were asked to rate how likely the authors were pro-Castro. There were two groups: subjects who were told that the authors were free to choose their arguments, and subjects who were told that the authors were randomly assigned to an argument.
Jones and Harris hypothesized that subjects would attribute the freely-chosen essays to the authors disposition and the chance-based essays to the situation. However, contradicting that hypothesis, subjects rated authors who wrote in favor of Castro as having more positive attitudes towards Castro whether or not they were randomly assigned to write positively about him.
Even knowing that the writers were forced to write a pro-Castro argument, subjects couldn’t refrain from attributing a sincere belief to the authors. In Jones and Harris’s words:
In a context that permits the target person some very minimal degree of spontaneity, the perceiver seems to view his performance as more informative than a rational analysis of act and context would suggest. This bias may have important implications for interpersonal relations, and we might propose a hypothesis for further research of that distortion.
With other people, we ignore environmental factors and attribute causes to internal factors. With ourselves, we do the opposite. Self-attribution bias is a bias in which we tend to take credit for successes and assign responsibility for failures. In other words, good outcomes are attributed to our skill, and bad outcomes are attributed to some uncontrollable external factor.
For example, we might attribute our good performance on a test to our innate skill and our bad performance on a test to a cold testing room or a loud noise that kept us up all night. Similarly, we might attribute a winning stock pick to our ability to predict the future and a bad stock pick to bad luck.
Hanlon’s razor is a useful mental model for minimizing the fundamental attribution error. It states, “Never attribute to malice that which is adequately explained by stupidity”. In other words, don’t assume bad intention over neglect or a simple misunderstanding.
When someone slights us, our first response might be to assume that they are evil or out to get us. It’s rare that we assume other factors are at play, like the person having a bad day or being in a rush. We go for the evil explanation more frequently despite it being the rarer cause.
As it relates to investing
There is an old Wall Street adage:
Don’t confuse brains with a bull market.
When analyzing our performance, it is important not to fall victim to self-attribution bias. Instead, we should view outcomes as objectively as possible by matching them with the original reasoning behind an investment. Sometimes we will win while being wrong. Sometimes we will lose while being right. Skill and luck are hard to distinguish between, but it is imperative that we make an effort to or else we run the risk of never learning from our mistakes.
The fundamental attribution error explains why we are quick to judge other while being quick to make excuses for ourselves. Self-attribution bias explains why we are quick to attribute our success to skill while attributing our failure to bad luck. It is important to be aware of both when trying to make sense of the world around us.